Vodafone, Orange to Share Network - Analyst Blog

By: Zacks.com

Posted: 8/1/2013 6:06:00 PM

Referenced Stocks: CHU;ORAN;TKC;VOD

European telecom giants
Vodafone Group Plc.
(
VOD
) and
Orange
(
ORAN
) have agreed to share network infrastructure in Romania. The
tie-up is a manifestation of the network sharing trend among
European operators to curtail capital investments.

Vodafone Romania and Orange Romania will jointly invest in 4G
rollout, targeting speedier expansion at a lesser cost. The deal
will allow the two operators to extend their reach in rural
Romania thus providing an opportunity to tap the under penetrated
regions of the European nation.

Both the companies will continue to compete against each other
and the other four operators in the Romanian market, where Orange
holds the top spot, followed by Vodafone. Additionally, both the
companies will independently operate their spectrum and will have
different core networks, which will differentiate their
competitiveness.

The partnership, however, entails Vodafone or Orange to share
each other's backhaul infrastructure thus eliminating network
duplication. Details about the financial synergies from the deal
were however not divulged by either company. Notably, this is the
second deal between the two telecom behemoths in Romania, where
they already share cell sites.

Telecom operators, in particular the Europeans, are entering
into infrastructure sharing partnerships to reduce their capital
burden on building their own LTE networks. According to rating
firm Moody's, European telecom operators are mulling over
alternatives to enhance network capacity and improve their
enormous debt burden.

Unprecedented adaptation of smartphones and other wireless
devices has led to a huge surge in data demand, and Europe is no
exception. This is exerting tremendous pressure on the networks
of the European operators. We see the latest tie-up as mutually
beneficial, allowing both Vodafone and Orange to deploy their LTE
networks faster and reduce network pressure.

Both Vodafone and Orange currently carry a Zacks Rank #3
(Hold). Other companies within the sector that are worth
considering are
Turkcell
(
TKC
) and
China Unicom
(
CHU
). Both the stocks currently carry a Zacks Rank #1 (Strong
Buy).